In the level where the boss is playing an old phonograph, find the three hidden watermelons. They are found in the following locations: just before going down to the wall of adobe buildings on the left; hidden in a deep gully; and on top of the mountains. Shoot all three of them to play a shooting gallery mini-game.
Start the level where you have to go to the log mill to kill the "Twins". Enter one of the rooms in the three gin distilleries at the start of the level that has a "table" constructed from a wood plank laying across barrels. Use dynamite to blows up one of the walls in that room to find a hidden area. Inside is a glowing purple Runestone.